Search form

In May 2018, Vistra acquired Radius, making it the number one international expansion services provider in the US. Vistra International Expansion now has more than 1,300 experts working in more than 40 jurisdictions to help you explore new markets and reduce the risk and complexity of global operations. Visit our new website.

APEC Summit Reflects Escalating US-China Tensions

Share

Dominated by disputes between China and the US, the recent Asia-Pacific Economic Cooperation (APEC) summit in Papua New Guinea ended without an agreement for the first time in its three-decade history, raising questions about future cooperation between the two superpowers.

US officials said the stalemate occurred because the US wanted to condemn what they called China’s restrictive trade policies and the forcing of foreign companies to transfer proprietary technology. China said they wanted to express opposition to US protectionism and the $250 billion tariffs the US has placed on its goods. China has responded by imposing $60 billion in tariffs on the US.

Wang Xiaolong, director general of China's Department of International Economic Affairs, said many points of disagreement were beyond the scope of APEC and would require decisions by the World Trade Organization.

The discord has led to worries about the outcome of the upcoming G20 meeting of the world's developed economies, which will be held in Buenos Aires, from November 30 to December 1. US President Donald Trump and Chinese President Xi Jinping will attend.

At the APEC summit, the US was represented by Vice President Mike Pence, whose fiery rhetoric rattled Chinese officials. The US could double the current tariffs, he said, adding that “China has taken advantage of the United States for many years. Those days are over.”

Effect on Multinationals

The escalating trade war between the US and China has businesses scrambling to avoid tariffs and operational disruptions.

In a recent poll by banking group Citi, more than half of the bank’s largest corporate clients said they plan to realign their supply chains and shift manufacturing to locations where they can operate without tariffs from the US, China or the EU. Half of the companies polled said their supply lines were affected, and the other half expected to experience an impact in 2019. General Motors’ recent announcement that it will stop production in five factories and cut about 14,000 jobs in North America is, according to GM CEO Mary Barra, in part a reaction to recent tariffs placed on steel and other materials.

A trade war between superpowers can start to look like an illustration of Newton’s third law of motion as other countries react in turn, sending businesses scurrying for cover. Harley-Davidson shifted some of its motorcycle production from the US to overseas locations to avoid tariffs imposed by the EU — a reaction to tariffs the US placed on steel and aluminum from Europe, Mexico and Canada.

Some US companies in China have made the difficult decision to stay despite the tariffs. While distressed by increased costs, some are also grateful that trade issues that have festered for years are finally being openly discussed. Other companies have moved manufacturing to countries in Southeast Asia, where costs remain relatively low.

The trade war reflects tensions that have been simmering for years as China expands its economic and military reach in the Pacific region and beyond. China’s moves have created security worries in the US, and both countries are vying for increased international influence and economic advantage.

Belt and Road Initiative

China’s most ambitious project, the Belt and Road Initiative, begun in 2013, is breathtaking in scope and has become the subject of increasing controversy. It is an attempt to build a massive amount of infrastructure and establish trade between China and at least 68 other countries. Collectively, countries included in the plan account for over 30 percent of global GDP, 62 percent of population and 75 percent of known energy reserves, according to the World Bank.

China has called Belt and Road the "project of the century," saying it will bring a “golden age” of globalization. It is financing infrastructure projects with loans to developing countries from its large state-owned enterprises, raising concerns about the countries’ ability to repay.

Many of the countries are rated by the OECD as having high economic risk. An analysis by the Center for Global Development, a US think tank, found that eight countries are at particular risk of debt distress.

Some have already experienced trouble. Montenegro’s credit rating was cut after it borrowed one-fifth of its GDP to fund the first phase of a new highway. Pakistan is considering asking the IMF for a bailout to help with debt repayment. Sri Lanka was forced to transfer ownership of a strategic port to China after it was unable to continue repaying debts.

Complicating matters further, some of the Chinese state-owned companies themselves are highly leveraged.

In the escalating battle for hearts and minds, as well as for economic influence, the US has played up problems with the Belt and Road project, labeling it a debt trap. At the APEC summit, the US announced a new initiative of its own, including $60 billion in US investments in the Pacific region, to counter it.

Pacific Island Buildup

Another point of contention has been China’s ownership claim of some of the islands dotting the South China Sea and building of artificial reefs there. The region contains important international shipping lanes and fisheries that could broaden China’s trade access and provide grounds for military bases. It was a strategic location in World War II. An international tribunal rejected China’s claims to the islands in 2016, but China may be considering a new military base on the island of Vanuatu.

In what has been called a “bid to lock China out from developing its own base in PNG,” Vice President Pence announced at the APEC summit that the US will partner with Papua New Guinea and Australia to upgrade a naval base in PNG. "We will work with these two nations to protect sovereignty and maritime rights in the Pacific Islands," Pence said.

Trade Disputes

The US has long accused China of disregarding patent laws and stealing technology secrets. Relationships are becoming an issue as China expands surveillance of its citizens with facial recognition and other artificial intelligence technology acquired from US partner companies.

Despite the real difficulties and harsh rhetoric separating the US and China, it would be pessimistic to conclude the trade war will become an endless pinball game of sanctions and counter-sanctions forcing poorer nations to take sides and businesses to run for cover. That course risks losing economic gains that could benefit both sides, as well as alienating many of the corporations and citizens who are supposed to be its beneficiaries.

Tough talk by leaders may hide more flexible negotiations beneath the surface. Despite the invective from President Trump, he has also raised the possibility of a trade deal with China. Officials are holding talks and some analysts say protectionist advocates are being sidelined.

The trade war is likely to go on for some time, but like a real war, it won’t last forever. The upcoming G20 summit may reveal a better picture of the hurdles ahead and options for clearing them.

Join hundreds of global business leaders who receive weekly international expansion updates and need-to-know global information.

All types

When a business looks to grow its market, exporting goods can seem like a simple way to expand its international presence. But similar to setting up overseas operations, exporting your products can create significant challenges: differing tax schemes, unique cultures and more can make even those countries that seem “easy” to export to quite complicated.